Living together presents difficult economic challenges. While there are decisions that it is clear to every couple that they must make at the beginning of their joint journey, such as where they choose to live, the way they will finance their place of residence – rent or purchase, and family planning and expansion, few couples emphasize saving as part of ongoing financial conduct in the early stages of the couple’s life.
It is true that usually at the beginning of cohabitation, incomes are low. Young couples who are at the beginning of their careers in terms of their careers are lower than they will be after a few years, when their experience and professional seniority will accumulate. However, expenses are also lower at the beginning, when a couple becomes a family, expenses increase, so balancing income and expenses does not become easy as time passes, and saving is an operation that sometimes becomes even more complex.
Why is it important to save at the beginning of life together?
The big little savings will be
Good savings to be made as early as possible. The reason for this is simple, our savings grow from year to year and the interest received on the savings accumulates and is added to the initial amount we saved. The profit on savings, which is actually the interest you receive on money deposited in savings, is calculated each year on the total amount of the profit from the previous year, so that from year to year the amounts increase greatly. This is how ‘de interest’ is calculated. Hard? Simply put, the sooner you save, the less money you’ll need to invest to achieve the required savings.
Be prepared for emergencies
In life, unplanned things can happen. Some examples of this may be losing your job at a time when you are financially stressed, one spouse has a problem that prevents him from earning a living temporarily or permanently, there is sudden damage to your home or, God forbid, you need medical treatment at a high cost.
Discuss it seriously among yourselves, and prepare for the worst with an emergency fund. You need to decide the amount that will allow you to live without income for several months and that will allow you to sleep well at night. Put the same amount aside or save it to reach it.
The Paamonim recommend setting aside at least three to four months’ income for this purpose. The thought behind the recommendation is that during this period it is possible to re-prepare, for example to activate insurance if the emergency is covered by insurance, to move to a cheaper apartment and make the necessary adjustments in life, or alternatively this emergency period will end and there will be a return to normal. It is important to reassess the same amount and risk situations once in a while.
Save for dreams and don’t take out loans
Dreams are not just for children. Dream big! Big dreams will motivate you to save. People often stop dreaming because they don’t have the financial ability to fulfill their dream. You can also save for the sake of making dreams come true: a new car, a trip, etc. It is much cheaper to save for a dream come true than to take out a loan. All interest payments are saved from you and you can get interest on your money. You can use a standing order for a savings plan. It is recommended to save about 3% of your income for this purpose.
Children cost money and a lot
The average cost of raising a child up to the age of 18 can be estimated at around NIS 500,000. The best way to deal with these costs is to start saving early. When the child was born, they established a fund or savings plan for him, for example for higher education. Allow those interested in joining, such as grandparents or godparents, to deposit into the same program. Never use your pension money for your children’s education or any other use.
So how do you know the appropriate monthly savings amount?
1. Know where your money is going
Start listing each expense for a month, and analyze the findings.
2. Plan and budget
Once you know your expense structure, map out your assets and liabilities, such as a car, or savings, and loans or debts. When you see the gap between income and expenses, you can draw up a clear and budgeted plan for your financial conduct and you can set savings goals.
3. Allocate savings according to your preferences
– Check if you can meet the savings according to the following rules of thumb, if not, adjust the savings to your ability and preferences. Review your situation periodically and make adjustments if necessary.
Emergency savings – at least three monthly salaries of both spouses.
Saving for a dream come true – about 3% of your monthly income.
And all this is in addition to your retirement savings, whether as employees through the workplace or as self-employed.
